Where there is still scope to contribute to a pension, even if at a tapered amount, it may be prudent to fund up to the limit and make use of any unused carry-forward from the previous three tax years. Some may find themselves in the fortunate position of having their employer make these contributions on their behalf, freeing up more of their personal capital to fund for additional retirement provision outside a pension, for example, into an international bond.
A mix of pensions and bonds close to and at retirement can, again, complement each other. As the bond has no age restrictions on withdrawals, it is possible to take tax-efficient payments (within the 5 per cent limit) before, say, the age of 55, to act as a bridging income until retirement or to supplement reduced wages. Then, once the pension becomes available, it is possible to phase income payments, so that only the tax-free cash is used, providing additional tax-free income.
In addition to pension and bonds, other investments can also be brought into the mix and advantage can be made of the various allowances now available, for example the new savings and dividend allowances.
Isas
Isas, unwrapped collectives, cash savings – indeed, any solution – can encompass a myriad of products/wrappers as part of a holistic solution.
Example: tax-efficient income
Victoria, aged 52
• Sold her marketing business (still does occasional consultancy work).
• Looking to supplement her ad hoc earnings for next three years.
• Looking to take a tax-efficient income from 55 onwards.
• She has an international investment bond, where the initial investment was £360,000.
• She has a Sipp worth £1.5m (with fixed protection 2014).
• She also has a portfolio of collectives and cash savings, some of which are wrapped into Isas.
Before age 55
• Victoria can take a regular withdrawal from the bond in the form of 5 per cent tax-deferred payments; and/or
• Take ad hoc withdrawals from the bond to supplement her consultancy earnings by making partial encashments using the accumulated 5 per cent tax-deferred facility.
From age 55
• She can take a tax-efficient income from her Sipp, phasing drawdown and using only tax-free cash to provide an income.
• Continue taking regular and/or ad hoc withdrawals from the international investment bond.
In those years with no consultancy earnings, she can take additional payments from either the pension drawdown or the international investment bond, keeping any income and realised gains within the personal allowance and still paying no income tax.
By utilising various income streams and making use of allowances, she could provide a tax-efficient income in retirement as the table below illustrates.
| Wrapper | Income | Tax |
| Sipp (crystallising £60,000 a year) | £15,000 (tax-free cash) | None (tax-free) |
| International investment bond (within 5% of original value) | £18,000 | None (tax-deferred) |
| Consultancy - salary/earnings | £11,000 (earnings) | None (within personal allowance) |
| Collectives/discretionary fund management | £5,000 (dividends) | None (within dividend allowance) |
| Cash savings | £6,000 (interest) | None (within starting rate band and personal savings allowance for basic-rate taxpayer) |
| Total | £55,000 |
